There is a direct, personal connection between consumers and the food and beverage and consumer packaged goods (F&B/CPG) industry. F&B/CPG companies produce the food we eat, what we drink, and the products we use on a daily basis. This personal relationship with consumers makes the industry a sensitive one—one that hinges on ever-changing consumer demand, making it particularly susceptible to rapid changes and expectations.
At the same time, producers face traditional pressures such as the need to improve operational efficiency, cut costs, maximize productivity, and differentiate their products from competitors. These issues, combined with the jump in high-profile food recalls over the past few years, have combined to form a complex operating environment.
A look back to 2016
While not quite unique to 2016, there were three overarching considerations driving most F&B/CPG executives’ decisions and strategies:
- Cost reductions–In the past, operational costs like energy, water, and waste were considered part of doing business. In 2016, this mindset began to shift, with manufacturers identifying these costs as the top area they are were looking to improve upon.
- Productivity–Increasing production efficiency and decreasing variations in production processes is a top challenge identified by the industry. Adding visibility to plant floor performance, and making decisions based on data analysis and information is where the Industrial Internet of Things (IIoT) comes in.
- FMSA/Regulatory requirements–Control, documentation, and tracking of every ingredient and process used throughout a production enterprise is now required by the U.S. government. To be successful, manufacturers must stress closed-loop quality, traceability across the value chain, and compliance throughout their processes.
In addition to these considerations, there were other developments that are indicators for the direction of 2017. The first is sustainability. In 2016 a UK-based food and beverage industry trade organization announced a comprehensive plan to increase the industry’s sustainability commitments for the future. The plan covers key areas where food and drink manufacturing can help deliver the biggest positive impacts by working collaboratively across their supply chains.
Disruptive business models
The second is disruptive business models. For example, in just five years, Dollar Shave Club was able to upend the shaving and razor market with a disruptive new approach--providing "product as a service." This is driven not just by quicker adoption of e-commerce and mobile technology, but by a tighter connection to the customer and a better understanding of their expectations and desires. The result was a Unilever acquisition of Dollar Shave Club for $1 billion. New players stand poised to impact many other segments within F&B/CPG.
A look ahead to 2017
As the food and beverage/CPG industry moves into 2017, shared common core objectives of cost reduction, improved efficiency and productivity, and brand differentiation prevail. There are five predominant themes that producers are embracing to help them meet these goals:
- Empowered consumers
- Direct consumer touchpoints
- Supply chain optimization
- Operational Excellence
The food and beverage/CPG industry is unique in its visibility to consumers, but other industries are similarly vulnerable to the same kinds of changes and shifts. As we all become more connected, what happens now in these businesses will happen elsewhere, not too far down the line.
For a detailed look at how food and beverage/CPG producers are implementing each of these 2017 themes, read our recent paper, GE Digital and the State of Food, Beverage and CPG, 2016 Review and 2017 Outlook.